The power of networks Featured

7:24am EDT October 26, 2006
Like the skeletal backbone directs the body’s movements, the provider network guides the HMO’s actions. Brought together by the network’s principles, the hospitals, physicians and ancillary providers within a network can effectively collaborate to offer the best patient care.

“Network providers increase the predictability of costs, services, outcomes and satisfaction,” says Rick Werner, network director of the Central Florida Region for AvMed Health Plans. “HMOs set standards for these providers and give them feedback on their individual performance.”

Smart Business spoke with Werner about the purpose and significance of HMO provider networks.

What are provider networks?
Provider networks are formed by an HMO contracting with hospitals, primary care physicians, specialty care physicians and ancillary facilities, such as free-standing ambulatory surgery centers, labs and diagnostic (radiology) centers. HMOs should maintain contracts with a spectrum of providers so they can offer a complete package of medical services to their members.

The contracts are very specific regarding provider accountability on how they will provide medical services as well as which services they will provide to HMO members. The terms of the contract identify not only the financial reimbursement from the HMO, but also the need for the provider to abide by set quality standards, audit procedures, and referral patterns. Generally, contracts are for a two-year initial period and have a 60- or 90-day ‘out’ clause after the initial period. The intent is that the providers and the HMO form a long-term relationship to promote the health of the HMO member within the network of providers.

How are provider networks formed?
Generally when HMOs develop a new area, they first make contracts with the hospitals. The goal is to make contracts with hospitals that provide full geographic access and the full spectrum of medical services in that geographic area. HMO legislation also dictates the allowable travel time for services. Where high-end specialty services (transplants, oncology services, neonatal care, etc.) are not readily available in a geographic area, HMOs may seek to contract with a national organization that will be able to provide the service within the scope of their networks, under a subcontract arrangement.

After the hospitals are contracted, physicians are sought out. Priority is given to those physicians who have measured performance in the area of outcomes, quality, patient satisfaction, peer acceptance, and who have admitting privileges at contracted hospitals.

The third leg of the HMO stool would be the ancillary providers who are generally free standing and not affiliated with hospitals or physicians. It is important to have the ancillary services within the network that would provide durable medical equipment, home health, hospice care or outpatient surgery centers. The goal is to have the entire spectrum of medical services that an HMO member could need under contract and readily available.

Why are provider networks a significant part of a health plan?
When employers choose a health plan with a comprehensive provider network, employees have access to quality care for every medical need. Provider networks also allow HMOs to educate providers on expected service standards, outcomes, and medical management of patients. These standards should include an emphasis on preventive care, including wellness visits and regular screenings.

The HMO needs to be looking for predictable medical outcomes while controlling medical costs. The contracted networks bring this type of cohesiveness to providing the services. Providers who meet or exceed the HMO’s standards are encouraged, and those who are aberrant in their performance are given information on how to improve and counseled by the HMO’s medical directors.

How should businesses decide which provider network is best for them?
Decision-makers within a business should evaluate the depth of the provider network. Larger may not always be better. An analysis will show that the complete range of medical services are available within the network and that key providers, known to that business, are also part of the network. A disruption review of which providers currently being used by employers is generally done to minimize the impact of changing from one HMO network to another.

Also, employers should look at what solutions the networks offer for out-of-area services. This ensures that family members living outside the region can still receive low-cost, high-quality health care.

From a financial standpoint, the decision-maker should be asking questions regarding overall discounts resulting from the hospital and physician contracts. These discounts enhance an HMO’s ability to establish long-term relationships with businesses, based on high-quality medical services with predictable, controlled future cost increases.

RICK WERNER is the network director of the Central Florida Region for AvMed Health Plans. Reach him at (813) 288-3354 or